Alcatel-Lucent is in talks with Goldman Sachs about obtaining a loan to strengthen the unprofitable network equipment vendor’s balance sheet, according to people familiar with the situation.

Under terms still being discussed, the New York-based investment bank would grant Alcatel-Lucent funding of an undisclosed amount, while the Paris-based firm would offer some of its assets as collateral, said the people, who asked not to be named because the deal isn’t final.

“This deal would buy Alcatel-Lucent time,” Andy Perkins, a London-based equity analyst at Societe Generale, wrote in a note. “It does not alter the fact that the company remains subscale in most markets.”

Mounting losses and a steady cash burn have pushed Chief Executive Officer Ben Verwaayen, heading into his sixth year in the job, to explore options ranging from asset and patents sales to asset-backed financing. The potential transactions show how Alcatel-Lucent, once a French industrial giant with operations from aerospace to cutting-edge theoretical physics research, is poised to shrink further as Chinese competition and slowing demand for network gear slam its earnings.

Sales of assets, such as a division that manufactures undersea fiber-optic cables, and Alcatel-Lucent’s so-called enterprise unit, which provides equipment to businesses, are being explored, people familiar with the matter said. Both the undersea cable and enterprise discussions are at a very early stage, and Alcatel-Lucent hasn’t hired an investment bank to advise on the potential sales, the people said.

Both assets may fetch less than $1.3 billion, they said.

“Asset disposals would result in a cash injection, but they would take some time,” according to Eric Beaudet, a Paris- based equity analyst at Natixis.

How quickly a solution can be implemented will impact the share price, Beaudet said.
An official at Alcatel-Lucent declined to comment on possible asset sales and on plans for asset-backed financing. A spokeswoman at Goldman declined to comment.

Selling some assets and secondary patents may be part of the solution to strengthen Alcatel-Lucent’s balance sheet, as well as using some assets as collateral for new financing, Chief Financial Officer Paul Tufano has said.

The company’s enterprise, strategic industries and submarine businesses were placed under Tufano’s management in September, separate from Alcatel-Lucent’s other network operations.

Verwaayen has made his mark on Alcatel-Lucent in the past by selling assets. He sold a stake in the aerospace manufacturer Thales in 2009 and last year agreed to sell the Genesys call- center software unit to Permira Advisers for $1.5 billion.

Still, amid weak sales and a difficult economic environment, divestments and thousands of job cuts have failed to stem losses at the company, which has burned through about $900 million of cash each year since it was created in 2006 by merging Alcatel SA and Lucent Technologies.

A possible secured loan from Goldman would further subordinate the company’s unsecured debt, which is not necessarily good news for investors already holding bonds with maturities of four or five years, said Juliano Torii, a credit analyst at Societe Generale.

To bring in cash, Alcatel is also exploring how it could use its patent portfolio, largely inherited from U.S. research facility Bell Labs in Murray Hill, people familiar with the matter said. Options include licensing agreements and asset-backed financing. Bloomberg